Doctrine Of Privity Of Contract & Its Exceptions | Indian Contract act in Tamil | CMA Foundation Law

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STRANGER TO CONTRACT / DOCTRINE OF PRIVITY OF CONTRACT:
The doctrine of privities of contract means that a contract is between the parties only and no third
person can sue upon it. It means that a stranger to contract cannot sue upon it. The Supreme
Court of India recognized this rule in MC Chacko v State Bank of Travancore. It is settled law that
a person not a party to a contract cannot subject to certain well recognized exceptions, enforce
the terms of the contract. Under the English Common law only a person who is party to a contract
can sue upon it. In India the common law doctrine of privities of contract is applicable. In the
course of time, the courts have introduced a number of exceptions to rule of privities of contract.
Indian Law:
The law in India is the same as the English Law. According to the Indian Contract Act, Consideration
for an agreement may proceed from a third party, but the third party who is a stranger to the
agreement cannot sue on the agreement. A person who is a party to the contract alone can
enforce the legal rights arising there from. So a stranger to contract as a rule, cannot sue upon
the contract.
Exceptions:
The following are the exceptions to the rule that a stranger to a contract cannot sue:
1. Beneficiary of a trust.
2. Provision in marriage settlement.
3. Provision for maintenance or marriage expenses of female members under a family
arrangement.
4. Assignee of a contract.
5. Acknowledgement of liability
6. Agency contract.
1. Beneficiary of a trust:
A trust is created for the benefit of a beneficiary. Hence, the beneficiary can enforce the provisions
of the trust even though he is a stranger to the contract.
2. Provision in marriage settlement:
A stranger to the contract can sue on the contract where a provision is made for him in marriage
settlement.
3. Provision for maintenance or marriage expenses of female members under a family arrangement:
In case a provision is made for the marriage or maintenance of a female member of the family
on the partition of a Hindu undivided family, the female member can enforce the promise though
she may be a stranger to a contract.
4. Assignee of a contract:
The benefits of a contract may be assigned. The assignee of a contract can enforce the benefits
THE INSTITUTE OF COST ACCOUNTANTS OF INDIA 17
The Indian Contract Act, 1872
of a contract though he is not a party to it.
Example:
‘A’ assigns his insurance policy in favour of his wife. The wife can enforce it although she is not a
party to it.
5. Acknowledgement of liability:
Where the promisor either by his conduct or acknowledgement or by part payment or by estoppel
creates privity of contract between himself and the stranger, the stranger can sue.
Example:
A pays B ` 500 to be given to C, B acknowledges to C that he holds that amount for him. C can
recover the amount from B.
6. Agency contract:
Contracts which are entered into by the agent on behalf of the principal can be enforced by the
principal even though he is not a party to the contract.